The debate over student loan forgiveness in the U.S. has been going on for years, and 2023 has been no different. While millions of Americans were hoping for some relief from their student loans, the rollback of forgiveness programs has put many borrowers in a tough spot. As payments resume, the big question is: how will this affect household spending and the broader U.S. economy?
In this article, we’ll take a look at what happens when borrowers have to resume payments and how it impacts not only their wallets but the economy as a whole.

A Big Hope, Followed by Disappointment
Let’s start by going back to 2022. The U.S. government introduced plans to forgive up to $20,000 in student loans for eligible borrowers. For millions, this was a beacon of hope. After all, student loans are a heavy burden. But in 2023, these plans were rolled back due to legal challenges. Suddenly, borrowers found themselves preparing to start paying again, and this shift is expected to ripple through the economy.
According to Al Jazeera, many borrowers had planned their budgets around the expectation of forgiveness, hoping that the extra cash could go toward paying down credit card debt, buying a home, or even just covering the rising costs of groceries and rent. With loan payments back on the table, people are now adjusting their spending plans, and that means cutting back on everything from vacations to dining out.

How Does Student Loan Debt Affect Household Spending?
The issue with student loans isn’t just that people owe money—it’s the fact that the payments eat into their disposable income. According to Investopedia, the average monthly payment for student loans ranges from $200 to $300, and in some cases, it’s much higher. For people who are juggling other debts or facing rising living costs, these payments leave little room for discretionary spending.
This is what economists refer to as the crowding-out effect. When borrowers allocate a large portion of their income to paying off student loans, they have less to spend on other things like shopping, eating out, or even investing in retirement savings. And when millions of people cut back on spending at the same time, it can have a noticeable impact on the broader economy.

The Economic Impact: Slowing Down Growth?
So, how big of an impact are we talking about? According to Forbes, when student loan payments resume, it could slow down economic growth. Why? Because household spending is a major driver of the U.S. economy—accounting for about 70% of GDP. When people are forced to divert money from spending on goods and services to paying off debt, it creates a ripple effect. Retailers, restaurants, and travel companies could all see a dip in demand, which in turn affects jobs and economic growth.
The Bipartisan Policy Center estimates that borrowers will collectively pay about $18 billion per month once payments resume. That’s $18 billion that could have gone into the economy through spending but will now go toward repaying loans. While some argue that this is necessary to bring down debt levels, there’s no denying that it will pull a chunk of money out of the economy.

What About Young Borrowers?
The group feeling the impact the most? Millennials and Gen Z. Many younger borrowers are just starting their careers, and they were hit hard by the COVID-19 pandemic. They were hoping that loan forgiveness would allow them to finally get a foothold in the economy—buy a home, start a family, or even launch a business.
But with payments set to resume, these plans are being delayed once again. According to the Council on Foreign Relations, student debt is one of the biggest reasons why young adults are putting off buying homes or starting families. Homeownership, in particular, is a key driver of wealth accumulation in the U.S., and without loan forgiveness, many young people will continue to rent rather than buy, which could have long-term consequences for their ability to build wealth.

Impact on Savings and Investments
It’s not just consumer spending that’s affected. Student loan debt also hits savings and investments. With payments resuming, borrowers will likely contribute less to their retirement accounts or emergency funds. According to Investopedia, some borrowers even have to dip into their savings just to make ends meet.
In the long run, this is worrying. If borrowers aren’t able to save for retirement or invest in assets like stocks or real estate, it could widen the wealth gap between those with student loans and those without. And while the resumption of payments may help reduce national debt, it does little to improve the financial health of individual borrowers.

What Happens to Household Budgets?
As households prepare for the resumption of payments, many will have to make tough choices. According to Al Jazeera, some borrowers will be forced to cut back on discretionary spending, while others may need to reduce savings or even take on more credit card debt to make ends meet.
For families already stretched thin by inflation and rising living costs, adding another bill to the pile could lead to even more financial stress. Some may even have to delay paying down other debts, like car loans or mortgages, which could lead to broader financial instability.
The Richmond Fed notes that borrowers who struggle to make their student loan payments are more likely to fall behind on other bills, which could negatively impact their credit scores. This, in turn, makes it harder to access affordable credit in the future, creating a vicious cycle that’s tough to break.

Will Loan Forgiveness Come Back?
While the broader loan forgiveness plan has been rolled back for now, there’s still some hope for borrowers. Policymakers are continuing to look for other ways to ease the burden, such as expanding income-driven repayment plans or offering targeted forgiveness to certain groups, like public service workers.
But any new forgiveness plans are likely to face significant legal and political challenges, meaning it could be a long time before we see any widespread relief. Until then, borrowers will have to manage their payments and find ways to navigate the economic impact.

The Road Ahead
So, what’s next for borrowers and the economy? As the Bipartisan Policy Center points out, resuming student loan payments will likely slow down consumer spending and potentially weaken economic growth. For borrowers, this means tightening household budgets, delaying big purchases, and prioritizing debt payments over savings and investments.
While some may argue that this is a necessary step to bring down overall debt levels, there’s no denying that it will have an impact on the economy, particularly for younger generations. And without any major policy changes on the horizon, borrowers will need to adjust to a new reality—one where student loan payments are once again a significant part of their monthly budgets.